Congress: Here Are Five Items That Must Go

This essay originally appeared in the Oct. 16 issue of Fortune magazine.
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In this era of budget surpluses, few seem concerned with fiscal tightening–especially the GOP‐​led Congress. Analysts Stephen Moore and Stephen Slivinski figure that this year’s Congress may be the most free‐​spending since the 1970s. These spendthrifts are overlooking a lot of expendable items. Here are five of the most noteworthy.

–Export‐​Import Bank. America is the world’s greatest trading nation, yet ExIm doles out more than $ 40 billion in loans, guarantees, and insurance to foreign governments and companies to buy U.S. exports. Though the bank contends that cheap credit is necessary to ensure that American products sell abroad, ExIm covers barely 1% of U.S. exports–a blip in today’s $ 9.6 trillion economy. The subsidies are only one factor in a buyer’s decision. Many of ExIm’s big borrowers–Argentina, Brazil, China, India, Indonesia, Mexico, Russia, South Korea, and Venezuela–have a surfeit of subsidized loans from other sources.

The bank takes its toll on the private sector. Herbert Kaufman, an economist at the University of Arizona, estimates that every $ 1 billion in federal loan guarantees crowds out as much as $ 1.32 billion in private investment.

–Small Business Administration. Created in 1953, the SBA supports less than 2% of the nearly 800,000 new businesses created every year. Yet the Clinton Administration wants to dole out $ 18 billion in loans and venture capital next year through the organization. The agency boasts that it provides a third of its general loans and 40% of its micro‐​loans (less than $ 25,000) to startups. Some may have thought this necessary in the ‘50s, but it’s certainly not today; venture investors poured a record amount of money ($ 37.3 billion) into sundry enterprises last year.

Small business doesn’t need the SBA. More jobs would be created if Uncle Sam let the market support business opportunities with the highest economic, rather than political, value.

–Appalachian Regional Commission. President Lyndon Johnson launched the Appalachian Regional Commission (ARC) in 1965. Six Presidents later, the ARC labors on; it has spent more than $ 7.4 billion on highways and a variety of social‐​welfare programs in the 406 counties of the 13 states defined as “Appalachia.” The agency plans to spend another $ 476.4 million next year.

The commission argues that these grants are necessary to get citizens engaged in community activity. But you can thank America’s boom–not ARC’s budget, which fell 40% in the 1980s–for resuscitating Appalachia. The region no longer needs the special attention. In the past decade, unemployment hovered at 4.8%, vs. 4.5% nationally. With federal agencies spending nearly $ 20 billion next year on transportation and other infrastructure, Appalachia will fare just fine.

–Community Development Block Grants. There are few programs more beloved by politicians than CDBG, founded in 1974. Congressmen dispense these grants to their constituents like candy. There were 21 pages of items in the last appropriations bill, including funding for the Wheels Museum in Bernalillo County, N.M.; a wellness center in Holmes County, Ohio; a mural in Twentynine Palms, Calif.; and a welcome center in Enumclaw, Wash. The Department of Housing and Urban Development nominally manages the program, which costs taxpayers nearly $ 5 billion annually.

–Japan-U.S. Friendship Commission. This is a small item, granted, but no less ridiculous. The U.S. and Japan have been close allies for a half‐​century. Businessmen, entertainers, athletes, diplomats, and soldiers constantly flow between the two nations. Yet Uncle Sam spends $ 2 million annually on the Japan-U.S. Friendship Commission. The commission underwrites academic studies, policy research, public‐​affairs programs, and even Internet chat groups–despite an abundance of private funding for the same activities.

The federal behemoth is growing even as private corporations streamline. Though legislators talk about constitutional reform to constrain federal spending, what they need to do is just say no.

Doug Bandow

Doug Bandow is a senior fellow at the Cato Institute and a former special assistant to President Reagan.